GM Looks To New Vehicles, China To Boost Profit
By Tom Krisher, AP Auto Writer
MILFORD (AP) - General Motors CEO Mary Barra told investors this week that GM plans a raft of new models and a big push to sell more cars in China to drive profits in coming years, as the biggest U.S. automaker tries to shift the spotlight from a mishandled recall of older small cars.
Barra needed to reassure investors that GM has a strong plan going forward. The stock has dropped about 18 percent this year. It rose 1.7 percent in afternoon trading.
GM recalled 2.6 million small cars worldwide earlier this year to fix faulty ignition switches that are now blamed for at least 23 deaths nationwide. Barra said suppliers have built all the replacement switches, but only about 1.2 million small cars have had the repairs so far.
GM has admitted knowing about the problem for a decade, but only recalled the cars this year. The switches can cause the engine to stall, deactivating the air bags.
Barra said GM still expects to pay out $400 million to $600 million to compensate ignition switch crash victims. The company has hired compensation expert Kenneth Feinberg to pay victims. He made his first offers last week.
The plan Barra outlined Wednesday emphasizes growth in China. GM plans to invest $14 billion through 2018, including five new assembly plants to support estimated sales of about 5 million per year. Last year the company sold nearly 3.2 million vehicles in China, compared with 2.8 million in the U.S.
GM hopes Chinese cars buyers embrace Cadillac, the luxury brand that has struggled in the U.S. despite earning numerous awards. GM expects China to become the world's largest luxury car market later this decade, and plans to introduce nine new Cadillacs there over the next five years.
New models also figure prominently in GM's strategy. The company said it expects 27 percent of its global sales to come from new or freshened models next year. That figure rises to 47 percent by 2019 as it accelerates new model rollouts.
The new vehicles, coupled with cost savings and other measures, should get GM to a 10 percent pretax profit margin in North America by 2016 and 9 to 10 percent for the whole company by early next decade. Profit margin is the percentage of each dollar in revenue a company actually keeps. In North America, GM is now at 7 percent.
GM's new vehicles start with midsize pickup trucks now arriving at dealerships, followed by the Chevrolet Trax subcompact SUV early next year, President Dan Ammann said. Those two vehicles should boost annual sales by about 200,000, Ammann said.
In Europe, where GM is predicting a return to profitability by 2016, a new Opel Corsa small car will go on sale by year end. GM also plans a new Opel Astra compact next year.
Product development chief Mark Reuss showed investors a new Cruze hatchback and a revamped Malibu, two of the more important vehicle updates GM plans. The current Malibu hasn't sold well, but Reuss said the new one shows "we've got our act together in the midsize car segment."
GM expects an annual $800 million profit improvement on the Cruze and Malibu alone due to higher prices and cost savings, Chief Financial Officer Chuck Stevens said.
Reuss said GM will save millions by going from 26 vehicle structures this model year to only four for all models by 2025. The four will share many parts, he said.
Barra said if the company performs on plan, dividends will rise. "When we do that our shareholders will receive the return on investment that they deserve," she said, without giving specifics.
Barra said the recalls have brought cultural changes and a stronger leadership team. And she's now pushing harder for change.
"For me personally, I'm a little more impatient, and I think that's a good thing," she told reporters at the company's proving ground in Milford, Michigan, north of Detroit.
Standard & Poors analyst Efriam Levy said the plan shows GM is headed in the right direction, although it faces significant challenges. Those include a potential U.S. sales decline after five years of growth, as well as the recall fallout and declining sales in Russia and Latin America.
Investors viewed GM's news more favorably than Monday's outlook from rival Ford, which predicted pretax profits for the year below previous forecasts. Ford shares have fallen more than 10 percent since its presentation to investors.
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